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FX Restrictions on Food Imports: Experts, Economists Share Their Perspective

Forex	1031 VIEWS
Forex
1031 VIEWS

Monday, August 27, 2019 / 11.00AM / Ottoabasi Abasiekong for Proshare WebTV / Header Image Credit: centralbanking

Two weeks ago, President Muhammadu Buhari, GCFR, in a meeting with Governors of the All Progressives Congress party, APC during the "Eid-al-Adha" Muslim festival informed them that he had directed the Central Bank of Nigeria (CBN), to extend the Forex restrictions beyond the 43 items in its list of food items.

The President's address to the governors was reaffirmed by his spokesman Malam Garba Shehu, who insisted that the extension of the list of items not eligible for FX was the sensible policy in the light of emerging global economic developments; the response to Garba's statement was swift and strong with balance of expert opinion disagreeing with the measure.

Last week at a Presidential retreat for the then Ministers-designate, the CBN Governor, Mr. Godwin Emefiele, reinforced the position of the Federal Government.

Emefiele said in a press interview on the sides of the retreat that he will enforce the directive of the President, by expanding the forex restrictions on food imports and other items, considered to be capable of local manufacture.

He believed that the directive would drive the domestic economy and local production, which would help in saving the nation's foreign reserves from added pressure.

The clear indication from recent pronouncements of government officials and the Central Bank is that more than 43 items will soon be placed on an elongated list of items that cannot be imported into the country through official foreign exchange sources such as banks.

Table 1 List of CBN's 'Not Valid For FX;' Food Items

Item	Sector	Companies Involved	National Classification
Rice	Agriculture	Flour Mills Plc	Crop Production
Margarine	Manufacturing	Unilever Plc	Food, Beverages & Tobacco
Palm Kernel/Palm Oil/ Vegetable Oil	Agriculture	Okomu Oil Palm, Flour Mills Plc	Crop Production
Meat and Processed Meat Products	Agriculture	Salimonu Co.Nig Ltd	Livestock
Vegetables and Processed Vegetable Products	Agriculture	Vital Products Plc	Crop Production
Poultry-chicken, eggs, Turkey	Agriculture	Obasanjo Farms	Livestock
Tinned Fish in sauce(Geisha) Sardines	Manufacturing		Food, Beverage and Tobacco
Tomatoes/Tomatoes paste	Manufacturing	NASCON, TGI Nigeria	Food, Beverage and Tobacco
Milk	Agriculture	Nestle, Nutricima, Friesland Campina	Livestock

Source: CBN, Proshare economy

Need for More Stakeholder Engagement

In a brief interview with Proshare WebTV the President/CEO of Transcorp Group, Mr. Valentine Ozigbo called on the monetary and fiscal authorities to work together, and organize extensive stakeholder engagements on the FX restrictions, which will create an opportunity for feedback from market operators. Ozigbo advised that a broad consensus be forged across sectors including manufacturing, agriculture, and the service sector.

FX Restrictions Cannot Solve Trade Problems

Mr Taiwo Oyedele a tax consultant with PriceWaterHouse Coopers, PwC, believes Nigeria cannot continue to solve trade issues and fiscal challenges with FX restrictions.

Oyedele said that the Federal Government needs to ensure coordination and harmony between fiscal, trade and monetary policies through the economic management team platform.

According to him, "Rather than restricting FX for Food imports, Nigeria should adopt an approach that promotes local food production in the areas of our comparative advantage both for domestic consumption as well as exports, while we import the food items that we cannot produce competitively".

He is of the view that the strategy should be all-encompassing to cover the entire value chain including research, logistics, storage, transportation, processing and so on.

FX Restrictions Should Be In Phases, Not a Blanket Approach

Economist Boniface Chizea also speaking to Proshare WebTV argued that the CBN should evolve a broader policy thrust, to phase-in the FX restrictions.

He warned that the policy must not be blanket; otherwise, it might precipitate avoidable disruptions.

According to the economist, a phased approach will prevent sudden scarcities, usually accompanied with the retrenchment of local productive capacity, and followed by massive layoffs in offices that could compound the unemployment situation in the country.

Speaking further on the policy of demand management, Chizea asserts that since the adoption of the approach against opposition from powerful stakeholders, the country has made considerable savings in foreign exchange disbursements since 2015.

He called on the CBN to follow the "Phased" implementation approach in FX restrictions, to guard against an increase in food inflation and worsening of the misery index.

With CBN poised to implement the FX restrictions Chizea called on businesses in the country, to be strategic and reposition their operations and processes.

CBN Autonomy Remains Crucial For Monetary Policy

Former Deputy Governor of the CBN, Professor, Kingsley Moghalu, insisted on the sanctity of the dichotomy between the fiscal and monetary policy to be sustained.

Moghalu argued that the 2007 CBN Act stipulated the autonomy of the Central Bank of Nigeria, which should be respected by the Presidency in terms of signalling and policy statements.

Fiscal and Monetary Policy Alignment Critical

Financial Analyst, Mr. Bismark Rewane, CEO of Financial Derivatives Company (FDC) in a recent interview on national television was of the view that the new fiscal policy team led by Finance/Budget & National Planning Minister. Mrs. Zainab Ahmed, would play a critical role in setting the policy agenda for the economy. The agenda would encompass concerns like FX restrictions.

Rewane expects that there will be policy alignment between the fiscal and monetary authorities, to reduce the pressures of CBN intervening in the economy.

CBN FX Restrictions Plan And The Way Forward

With the Cabinet of President Muhammadu Buhari now in place, there are expectations that the finance team will work within the scope of the Economic Recovery and Growth Plan, ERGP which will end in 2020.

Analysts note that the monetary policy authorities need to work in partnership with the fiscal authorities, to support the stability and growth of the local economy.

Economists interviewed emphasised the need for coordination between the fiscal, trade and monetary policies in the country.

Against the background of a fiscal-monetary policy balance debate 2019 edition of the Nigeria Economic Summit Group, NESG will be focusing on the theme "2050: Shifting Gears" a conference that will discuss Nigeria's competitiveness globally in 2050.

This speaks to the need for economic policies in the country that have a long-term focus on growth and development.

A major expectation from the nation is the need for a holistic review of the tariff plans of the country, which is more proactive and strategic for the economy.

Nigeria will have to rely on verifiable data on its attainment of self-sufficiency in the production of foodstuffs like Rice, which should go beyond political statements.

As the CBN gets set to unfold its next FX restrictions template, stakeholders will watch the new list closely and discern the implications for the economy and the country's engagement with Africa, in the light of the recent Regional Continental Free Trade Agreement, AfCFTA.